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Making Your Offer Count!
When you prepare an offer to purchase a home, you already know the seller’s asking
price. But what price are you going to offer and how do you come up with that
figure?
Determining your offer price is a three-step process. First, you look at recent
sales of similar properties to come up with a price range. Then, you analyze additional
data, such as the condition of the home, improvements made to the property, current
market conditions, and the circumstances of the seller. This will help you settle
on a price you think would be fair to pay for the home. Finally, depending on
your negotiating style, you adjust your "fair" price and come up with what you
want to put in your offer.
Is your dream home worth the money?
The first step in determining the price you are willing to offer is to look at
the recent sales of similar homes. These are called "comparable sales." Comparable
sales are recent sales of homes that compare closely to the one you are looking
to purchase. Specifically, you want to compare prices of homes that are similar
in square footage, number of bedrooms and bathrooms, garage space, lot size, and
type of construction.
If the home you are interested in is part of a tract of homes, then you will
most likely find some exact model matches to compare against one another.
There are three main sources of information on comparable sales, all of which
are easily accessed by a real estate agent. It is somewhat more difficult for
the general public to access this data, and in some cases impossible. Two of the
most obvious information sources are the public record and the Multiple Listing
Service. Your Rebel Realtor consultant can pull all of the necessary information
to get you the facts needed to make the right decision.
What have they done for your potential home lately?
Even when comparing exact model matches within a tract of homes, you should note
whether the previous owners have made any substantial improvements. Cosmetic changes
should be largely ignored, but major improvements should be taken into account.
Most important would be room additions, especially bedrooms and bathrooms. Other
items, like expensive floor tile or swimming pools should be taken into account,
too, but should be discounted. A pool that costs $20,000 to install does not normally
add $20,000 in value to the home. Rely on your agent to give you guidance in this
area.
IMPORTANT CONSIDERATION
What is really happening in the market NOW?
Gathering and analyzing information from comparable sales helps to establish
the range of prices you should consider when making an offer to buy a home. More
weight should be given to the most recent sales, but even so, you need to do a
bit more analysis before setting upon the price you will offer. That is because
you also need to consider the condition of the property, improvements, the current
market, and the circumstances behind the seller’s decision to sell.
A hot market is a "seller’s market." During a seller’s market, properties can
sell within a few days of being listed and there are often multiple offers. Sometimes
homes even sell above the asking price. Though most buyer’s want to get a "deal" on a home, reducing
your offer by even a few thousand dollars could mean that someone else will get
the home you desire.
A slow market is a "buyer’s market. During a buyer’s market properties may languish
on the market for some time and offers may be few and far between. Prices may
even decline temporarily. Such a market would allow you to be more flexible in
offering a lower price for the home. Even if your offered price is too low, the
seller is likely to make some sort of counter-offer and you can begin negotiations
in earnest.
More often than not, the market is simply "steady," or in transition. When a
market is steady, no real rules apply on whether you should make an offer on the
high end of your range or the low end. You could find yourself in a situation
with multiple offers on your desired house, or where no one has made an offer
in weeks.
Transition markets are more difficult to define. If the economy slows unexpectedly,
as it did in the early nineties, people who buy on the high end of a seller’s
market (like the late eighties) could find their home loses value for several
years. So far, no one has proven reliable in predicting when markets change or
how good or bad the real estate market will become.
Bottom Line...
Comparable sales information helps you to determine a base price range for a
particular home. Adding in the various factors like property condition, improvements,
market conditions, and seller motivation help determine whether a "fair" price
would be at the upper limit of that range or the lower limit. Perhaps you will
feel a fair price is outside of that price range.
The "fair" price should be approximately what you are willing to agree on at
the end of negotiations with the seller. The price you put in your offer to begin negotiations is totally up to you and depends on your negotiating style. Most
buyers start off somewhat lower than the price they eventually want to pay.
Although your agent may provide advice and guidance, you are the one who makes
the decision. The price you put in the offer is totally up to you. | 
